Agriculture: Fair Value Measurement

IFRS Interpretations Committee agenda decision

Using the fair value of the land (ie based on its highest and best use as required by IFRS 13 Fair Value Measurement) in applying the residual method in IAS 41 Agriculture might result in a minimal or nil fair value for the biological assets when the current use of the land is different from its highest and best use.

In April 2012 the Interpretations Committee received a request seeking clarification of paragraph 25 of IAS 41. This paragraph refers to the use of a residual method as an example of a possible valuation technique to measure the fair value of biological assets that are physically attached to land, if the biological assets have no separate market but an active market does exist for the combined assets as a group.

The submitter's concern is how the valuation of the biological assets is linked to the valuation of the land on which they are situated, when an entity has concluded that the valuation premise of the biological assets is to use them in combination with other assets (such as land) and any of those other assets has a highest and best use that differs from its current use.

The Interpretations Committee discussed this issue at four of its meetings and observed that the same concern as raised in the submission could arise when the fair value of a non biological asset (for example, a building) is linked to the value of the land on which it is situated. The Interpretations Committee decided not to take this issue to its agenda because it is too broad for it to address.

At this meeting, the IASB noted that IAS 41 does not require the use of the residual method. It further noted that IFRS 13 encourages the use of multiple valuation techniques where appropriate.

The IASB acknowledged the Interpretations Committee’s observations about this issue. The IASB noted that the result of the outreach indicates that this issue is not currently widespread. It therefore decided that, depending on how practice develops in this area, this matter could be considered for review in the Post-Implementation Review of IFRS 13.